Virtual Christmas Parties given the green light by HMRC

In years gone by we’d be brushing off those Christmas jumpers and sharing a glass with our fellow colleagues on an annual Christmas party. This year is going to be different and many firms are looking at ways to still bring the Christmas cheer to their employees but in a safe and secure way.

We have taken this opportunity to look at the tax considerations for your virtual Christmas party and despite concerns HMRC have given us some good news and stated all the costs relating to a virtual party will be exempt under the annual function exemption.

Let’s take a closer look at the exemptions available:

Annual function exemption

In the UK employers can take advantage of the annual function exemption, which means no tax or national insurance contributions are payable on costs relating to annual social events organised for employees.

There is a limit on this of £150 per attendee (including non-employee guests) each year and if this limit is breached, the employer must cover the tax and NIC for all of the costs, not just the breach. The exemption considers all end-to-end costs for the event including VAT.

For an event to be eligible for the exemption, it must be open to all employees, or alternatively, if there are several events in multiple locations or offices, all employees should be able to attend one.

HMRC have now confirmed that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held, parties.

Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met.

Trivial benefits rule

A simpler alternative in the current circumstances may be for employers to provide staff with a gift to enjoy the festivities.

Under the trivial benefits rule employers can provide a gift up to the value of £50 including VAT without paying tax on the item. To qualify the gift cannot be cash (or a voucher that can be exchanged for cash) and it cannot be in exchange for work or performance.

Employers could provide a hamper or a voucher for food and drink, for example. In this instance the trivial benefits exemption should apply, but in the absence of the elements of a Christmas party, the annual functions exemption will not be available.

What about both?

The two exemptions can work alongside each other, so employees can be invited to a Christmas party, allowable under the annual function exemption and also be given £50 of, say, gift vouchers, covered by the trivial benefits exemption.

Want to know more?

If you would like to know more information on the above, please contact a member of our expert team on 0330 22 33 660 and we will be happy to assist.